One job of a business owner is to make and keep good corporate records. These documents are an important administrative function of your business and become a central focus when you face a government audit such as an IRS audit or worker compensation insurance audit. They’re also useful if you ever choose to sell the business as they document all the key changes and financial decisions you’ve made over the years. Finally, and perhaps most importantly, these corporate records create the corporate veil that limits your personal liability in civil lawsuits.
The Corporate Veil
Good corporate records help maintain the “corporate veil,” the civil liability protection you get when you form a corporation. This veil protects your personal assets against lawsuits and creditors, but it has to be intact in order to do so. If the opposing party can pierce the corporate veil, then they have the ability to go after your personal assets as well as the company’s assets.
Piercing the veil requires demonstrating that the company has not followed the proper corporate formalities. A large part of showing the court that you have followed these formalities is showing the records you’ve kept during the process. These records will demonstrate that the business is clearly a separate entity or “legal person” and not merely an extension of the owner.
Creating and Maintaining the Corporate Record
There are a number of different documents that go into the corporate record and which specific ones you need will depend on the type of business you set up, the size of that business, and even the industry you’re business operates. Your business attorney can help guide you in the right direction, but here are some common record types.
- Articles of Incorporation and
are the initial documents, and any amendments to those documents, filed with
the Secretary of State’s office. They include critical information like your
businesses name and address, registered agent, and certain types of elections
such as share classes.
- Bylaws and Operating Agreements: While not formally filed with the
state, these documents tell you how to run the business. They include how the
assets of the business are divided if there are multiple owners, when the
fiscal year starts, and much more.
- Ownership Ledgers: Your business should have a list
that shows the names and addresses of all owners, managers, and members,
especially if you have multiple owners with different amounts of ownership or
classes of stock. You should also maintain a list of the names and addresses of
all officers and directors of your business.
- Annual Reports: If your business is required to
file an annual report to the securities department, then you should keep a copy
of that report, and any supporting financial documentation, on hand.
- Meeting Minutes: When your board or your shareholders meet, it’s important to take notes of all decisions made during these meetings. These decisions are likely the ones that are guiding your business in the future. This includes election of officers, issuing stock, bringing in new owners, major financial decisions, and merger and acquisition decisions.
When you face a government audit or a business lawsuit, the experienced team of litigators at the Dunn Law Firm are here to help. We will work hard to protect your business and put it back in a situation to grow. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 and set up a free consultation today.